One of the riskier aspects of an IPO is that the underwriter can, at any given moment, decide to terminate their participation thus killing your deal. They can also adjust the pricing of the deal if they feel the marketplace is not embracing your deal. The state of the markets at the time your deal goes public determines the final pricing of the IPO shares. So, in reality, you could spend a couple of million dollars getting to the starting gate only to find out you can not run the race. Sometimes deals are cancelled because of market conditions, sometimes for pure lack of interest.

Reverse mergers, on the other hand, are not dependent upon an underwriter so they are not market sensitive. So, for the most part, regardless of what is going on in the markets the reverse merger will still move forward and be completed. Today, many reverse mergers include PIPE (Private Investments in Public Equity) financing. Some PIPE financings are completed just prior to the reverse merger and some are performed after the merger. In most cases the investors receive “registration rights” or the ability to have their shares registered as free trading stock. The major difference between this type of financing and IPO’s is that the PIPE financing does not determine whether the company goes public. It is a separate transaction from the reverse merger; whereas, if a company cannot get their IPO funded, they will not be able to become a public company.

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